If you're self-employed, Schedule C (Profit or Loss From Business) is where you report your business income and expenses. The IRS divides Schedule C into several sections, and Part II is dedicated to business expenses.
These expenses are important because they directly reduce your net business income. In most cases, lowering your net profit also lowers the amount of self-employment tax and income tax you owe.
To be deductible, expenses must generally be ordinary and necessary for your trade or business.
Advertising
Enter amounts paid to promote your business or attract customers.
Examples include:
- Business cards
- Flyers and brochures
- Online advertising
- Website marketing
- Newspaper or magazine ads
- Social media advertising
Commissions and Fees
This category is for amounts paid for services related to your business that are not payments to contractors or employees.
Examples may include:
- Referral fees
- Sales commissions
- Payment processing fees
- Business service fees
Contract Labor
Contract labor includes payments made to individuals who perform work for your business but are not your employees.
Examples include:
- Freelancers
- Subcontractors
- Independent contractors
- Consultants
Depletion
Depletion is a specialized deduction used by businesses that extract natural resources from property.
Examples include:
- Oil
- Natural gas
- Minerals
- Timber
Employee Benefit Programs
Enter contributions made on behalf of employees under qualified benefit programs.
Examples include:
- Accident and health plans
- Group life insurance
- Dependent care assistance programs
- Other employee benefit programs
Insurance (Other Than Health)
Enter insurance premiums paid for your business, excluding health insurance premiums.
Examples include:
- Business liability insurance
- Errors and omissions insurance
- Malpractice insurance
- Workers' compensation insurance
- Commercial property insurance
Interest
You may deduct interest paid on debts related to your business.
Examples include:
- Business loan interest
- Business credit card interest
- Equipment financing interest
- Business line-of-credit interest
Legal and Professional Services
Enter fees paid for professional services related to your business.
Examples include:
- Tax preparation fees related to the business
- Legal services
- Business consulting fees
- Accounting services
- Branding or marketing consultations
Office Expenses
Office expenses include supplies and items used to run your business.
Examples include:
- Pens and paper
- Postage and shipping supplies
- Printer ink
- Cleaning supplies
- Small office supplies
Pension and Profit-Sharing Plans
Enter contributions made to employee retirement plans.
Examples include:
- Pension plans
- Profit-sharing plans
- Employee retirement plan contributions
- Certain annuity plans
Rent or Lease (Equipment)
This category is used for equipment rented or leased for business use.
Examples include:
- Machinery rentals
- Equipment leases
- Vehicle leases used for business
- Computer equipment rentals
Rent or Lease (Property)
Enter payments made to rent business property.
Examples include:
- Office space
- Retail locations
- Storage facilities
- Warehouses
Repairs and Maintenance
You can deduct the cost of maintaining business property in its ordinary operating condition.
Examples include:
- Painting
- Plumbing repairs
- Replacing hardware
- Routine maintenance
- Minor repairs
Supplies
Supplies include materials used in producing products or providing services.
Examples include:
- Manufacturing materials
- Ingredients used in a business
- Paint brushes
- Camera supplies
- Office materials
Taxes and Licenses
Enter taxes, permits, and licenses related to your business.
Examples include:
- Business licenses
- Professional licenses
- Regulatory fees
- Property taxes on business property
- Industry permits
Travel and Meals
You may deduct qualifying travel and meal expenses incurred for business purposes.
Examples include:
- Airfare
- Hotels
- Taxi and rideshare fares
- Business meals
- Rental cars
Utilities
Utilities are business-related services used to operate your business.
Examples include:
- Internet service
- Business cell phone expenses
- Security monitoring services
- Electricity for business property
- Water and gas for business locations
Wages
Enter wages paid to employees of your business.
Examples include compensation paid to:
- Full-time employees
- Part-time employees
- Seasonal employees
These are wages reported to workers on Form W-2.
You cannot deduct amounts paid to yourself as wages if you're a sole proprietor filing Schedule C.
Where Are These Expenses Carried?
This information is carried to the Schedule C Part II:
All of these expenses are reported in Part II of Schedule C and are used to calculate your net business profit or loss.
The total expenses are subtracted from your business income to determine:
- Net profit or loss from your business
- Self-employment income
- Self-employment tax
- Potential eligibility for deductions such as the Qualified Business Income Deduction (QBID)
Why Is My Net Income Negative?
If your expenses exceed the income you report for your business, your net business income will be a negative amount signifying a loss. No self-employment tax will be calculated for a business loss.
Additional Information
For information on the income entries, review the Knowledgebase article below: